1. Why China might welcome trade war with the US

Why China might welcome trade war with the US

Donald Trump’s big win might seem a big loss for China. After spending much of his campaign calling China a cheater that steals American jobs, Trump’s election almost certainly means Washington will take a much harder line over trade, the Chinese currency and other contentious economic issues.

By: | Published: November 11, 2016 11:59 AM
chin-trade-war-l-reu For the nationalist upsurge he’s inspired will ultimately serve China’s, not America’s, economic interests. (Source: Reuters)

Donald Trump’s big win might seem a big loss for China. After spending much of his campaign calling China a cheater that steals American jobs, Trump’s election almost certainly means Washington will take a much harder line over trade, the Chinese currency and other contentious economic issues.

Nevertheless, China’s policymakers will likely welcome President Trump. For the nationalist upsurge he’s inspired will ultimately serve China’s, not America’s, economic interests.

Of course, Trump will cause some disruption in the short term. China’s economic relationship with the US is by far its most important: The Middle Kingdom needs American consumers to buy its exports and American investment and technology to upgrade its industry. The tools Trump has threatened to employ against China — hiking tariffs, renegotiating trade arrangements, labeling the country a “currency manipulator” — could deal a blow to China’s growth just as the country is struggling with mounting debt, excess capacity and stagnant exports.

However, Trump’s policies will ultimately work to China’s advantage. That’s because, in reality, the China that Trump has been bashing — the one that “steals” jobs with unfair practices and cheap labor — no longer exists. The China of today isn’t as interested in assembly lines making blue jeans and iPhones. In fact, with costs rising, China is losing many factory jobs both to other developing nations and to the U.S.

This new China has bigger and bolder goals, which Trump appears not to understand. Instead of acting as the workshop of the world, churning out cheap stuff for Wal-Mart Stores Inc., China intends to create its own national champions to compete with, and even supplant, America’s. Chinese leaders want U.S. consumers to buy Chinese smartphones using Chinese operating systems, instead of Chinese consumers buying those made by Apple Inc.

The government has backed that plan with ample subsidies and other support for Chinese firms that are developing new technologies and products, from electric cars to semiconductors. A national industrial strategy called “Made in China 2025” is designed to promote the manufacturing of high-tech ships, medical devices, robotics and other advanced equipment. Local governments dole out cash and other goodies to budding entrepreneurs.

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Foreigners need not apply. International companies attest that the Chinese government has become less welcoming and the business environment more hostile. They run up against mysterious regulatory investigations, go-slow bureaucratic practices and old-fashioned investment barriers that hamper their businesses. Trump’s policies would give China cover to reinforce this approach.

The Chinese market has become critical for US firms from Starbucks to Boeing. If China further closes the door to its increasingly wealthy consumers and burgeoning home market, that’ll curtail their revenues and profits — and the number of jobs that they can create back home.

Trump’s anti-trade sentiments will also permit China to expand its economic and political influence in Asia at the expense of the U.S. The Trans-Pacific Partnership will likely die with a Trump presidency, and with it America’s chance to solidify its presence in the economically vital Asia region and intensify pressure on China to adopt U.S.-designed standards on trade. That clears the way for China to push its own proposed Asia-wide trade pact in its place. As Mark Williams, chief Asia economist at research firm Capital Economics put it in a Nov. 9 report: “If the U.S. is less engaged in Asia, Beijing will have an opportunity to shape regional political and economic integration on its own terms.”

To be fair to Trump, he does have good reasons to toughen up with China. The country’s progress on promised “opening up” reforms has been negligible. I myself have advocated a carefully targeted policy of reciprocity to pry open the Chinese market to U.S. firms.

The problem with Trump’s approach is that he’s fighting yesterday’s war over yesterday’s industries and jobs, while aiding China’s pursuit of tomorrow’s industries and jobs. Rather than bring China to heel, he’ll help the country compete with U.S. companies in the businesses of the future.

Trump once said that China’s leaders are smarter than America’s. On this point, he’s right.

(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.)

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